1. avatar says

    Good afternoon!

    I have a question regarding the variable and fixed costs per unit and I was hoping you could clear it out for me.
    I looked over a table in my text book, where it says that the variable cost per unit is constant when the volume of production increases, and the fixed cost per unit decreases while production increases. I am really confused about this. Shouldn’t the fixed costs be constant regardless of output and variable costs vary accordingly to the volume of production? Thank you!

    • Avatar of johnmoffat says

      I think maybe you are reading it too fast :-)

      The book is correct (and says the same as my lecture).

      Variable costs are fixed per unit – it is the total variable cost that changes with the number of units.

      Fixed costs are fixed in total, but the fixed cost per unit will fall with more units being produced.
      (If the fixed cost is $10000 and you produce 10000 units, then each unit costs $1. If you produce 20000 units, then the total cost stays at $10000 but the cost per unit is then $0.50 )

  2. avatar says

    Hello everyone! Can someone please tell me what does: ” overtime is paid at a rate of time and a quarter” mean? For example: workers are paid $10 per hour and this week they have worked a total of 20 hours overtime: 12 hours on specific orders and 8 hours on general overtime. How do I compute the specific overtime, keeping in mind that ” overtime is paid at a rate of time and a quarter”? Thank you!

    • Avatar of johnmoffat says

      It means that for every hour of overtime they are paid for 1.25 hours.

      So if they work 12 hours overtime they will be paid for 12 x 1.25 = 15 hours at $10 =
      $ 150

      (Alternatively you can get the same answer by paying the overtime hours at 1.25 x the normal rate. So 1.25 x $10 =

      12 hours at $12.50 an hour = $150 )

    • Avatar of johnmoffat says

      Rubbish! Most of the topics in F2 are included in the lectures – and all the more important topics are certainly covered.
      Those that are not in the lectures are covered in the Course Notes for you to read yourself.
      There will not be more lectures.

      • avatar says

        For this examination we will assume that total variable costs vary linearly with the level of
        production (or that the variable cost per unit remains constant). In practice this may not be the
        case, but we will not consider the effect of this until later examinations.I NEED HELP :MEANING.:)

  3. avatar says

    an organization has the following activity
    total cost activity level
    120000 20000
    136000 24000

    variable cost is constant within the activity range but there is a step up increase 4000 in total fixed cost when an activty level of 22500 is reached .. what are total fixed cost at an activty level of 24000 units

    A 40000
    b 44000
    c 60000
    d 64000

    answer please .

    • avatar says

      The Answer is D.
      activity level total cost
      High 24,000 136,000
      low 20,000 120,000
      difference 4,000 16,000

      Extra fixed cost (4,000)
      Total variable cost 12,000

      Variable cost per unit 12,000/4000 = 3

      Fixed cost at level 24,000 (which is the highest level)
      = Total cost at that level – variable cost
      = 136,000 – (24,000 x 3)
      = 136,000 – 72,000
      = 64,000

  4. avatar says

    Question 5 says “Up to a given level o? activity in each period the purchase price per unit o? a raw material is constant”i cant see that constant part on that graph?

    • Avatar of johnmoffat says

      guaranteed 80% of time based pay means that although they are paid on the basis of what they produce, the minimum they can be paid is 80% of what it would be if they were simply paid per hour.

      So…the minimum they can be paid is 80% x 8 hours x $20 = $128

      You have to calculate what they would be paid using piecework. If it comes to more than $128 then they get paid the piecework amount. If it comes to less than $128 they they get the guaranteed $128.

      The full answer is at the back of the course notes.

  5. avatar says

    Two budgets are given below:

    Output(units) 1,000 2,000
    Budgeted cost 2,500 3.500

    The total fixed costs estimated for the 2,000 units budget are 20% higher than the total fixed costs for the 1.000 units budget.

    What is the budgeted variable cost/unit of output?
    plzz someone help me with this question..!!!!!

      • avatar says

        I am getting $0.5…Can you please explain how it is $0.625?
        This is how I worked:
        Units Budgeted Cost
        1000 2500
        2000 3000 (as total fixed cost for 2000 units is 20% higher than that of 1000 units – hence 3500 – (20% of 2500) )
        Using High low method then it comes $0.5

      • Avatar of johnmoffat says

        Your workings are treating the whole of the $2500 as though it was a fixed cost.

        If v is the variable cost per unit, and if f is the fixed cost per unit, then:

        for 1000 units: 1000v + f = 2500
        for 2000 units: 2000v + 1.2f = 3500

        There are several ways of solving these equations (all obviously giving the same answer!), but here is one way:

        Multiply the first equation throughout by 1.2
        This gives: 1200v + 1.2F = 3000

        The subtract this equation for the equation for 2000 units:

        (2000v – 1200v) + 0 = 3500 – 3000

        so 800v = 500

        v = 500/800 = 0.625

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